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Start Preamble

AGENCY:

Federal Trade Commission.

ACTION:

Notice and request for comment.

SUMMARY:

The Federal Trade Commission (“FTC” or “Commission”) intends to conduct a pilot study in connection with Section 319 of the Fair and Accurate Credit Transactions Act of 2003, Pub. L. 108-159 (2003). This study is a follow-up to the Commission's previous pilot study conducted from October 2005 through June 2006. Before gathering this information, the FTC is seeking public Start Printed Page 61777comment on its proposed consumer pilot study. Comments will be considered before the FTC submits a request for Office of Management and Budget (“OMB”) review under the Paperwork Reduction Act, 44 U.S.C. 3501-3520.

DATES:

Public comments must be received on or before December 18, 2006.

ADDRESSES:

Interested parties are invited to submit written comments. Comments should refer to “Accuracy Pilot Study: Paperwork Comment (FTC file no. P044804)” to facilitate the organization of the comments. A comment filed in paper form should include this reference both in the text and on the envelope and should be mailed or delivered, with two complete copies, to the following address: Federal Trade Commission/Office of the Secretary, Room H-135 (Annex J), 600 Pennsylvania Avenue, NW., Washington, DC 20580. Because paper mail in the Washington area and at the Commission is subject to delay, please consider submitting your comments in electronic form, as prescribed below. However, if the comment contains any material for which confidential treatment is requested, it must be filed in paper form, and the first page of the document must be clearly labeled “Confidential.” [1]
The FTC is requesting that any comment filed in paper form be sent by courier or overnight service, if possible.

The FTC Act and other laws the Commission administers permit the collection of public comments to consider and use in this proceeding as appropriate. All timely and responsive public comments, whether filed in paper or electronic form, will be considered by the Commission, and will be available to the public on the FTC Web site, to the extent practicable, at http://www.ftc.gov. As a matter of discretion, the FTC makes every effort to remove home contact information for individuals from public comments it receives before placing those comments on the FTC Web site. More information, including routine uses permitted by the Privacy Act, may be found in the FTC's privacy policy, at http://www.ftc.gov/​ftc/​privacy.htm.

FOR FURTHER INFORMATION CONTACT:

SUPPLEMENTARY INFORMATION:

Section 319 of the Fair and Accurate Credit Transactions Act of 2003 (“FACT Act” or the “Act”), Pub. L. 108-159 (2003), requires the FTC to study the accuracy and completeness of information in consumers' credit reports and to consider methods for improving the accuracy and completeness of such information. Section 319 of the Act also requires the Commission to issue a series of biennial reports to Congress over a period of eleven years. The first report was submitted to Congress in December 2004 (“December 2004 Report”).[2]

In July 2005, OMB approved the FTC's request to conduct a pilot study to evaluate the feasibility of a methodology that involves direct review by consumers of the information contained in their credit reports (OMB Control Number 3084-0133).[3]
After receiving OMB approval, the FTC conducted the pilot study from October 2005 through June 2006. As discussed below, FTC staff believes it is necessary to conduct a follow-up pilot study to evaluate additional design elements prior to carrying out a nationwide survey on the accuracy and completeness of consumer credit reports. The additional design elements would permit the FTC to further assess whether the collection of certain data pertinent to credit report accuracy can be obtained in a way that is not unduly resource-intensive or otherwise cost-prohibitive if extended to a nationwide survey. As with the initial study, the FTC's proposed follow-up study will not rely on the selection of a nationally representative sample of consumers and statistical conclusions will not be drawn.

Under the Paperwork Reduction Act (“PRA”), 44 U.S.C. 3501-3520, Federal agencies must obtain approval from OMB for each collection of information they conduct or sponsor. “Collection of information” means agency requests or requirements that members of the public submit reports, keep records, or provide information to a third party. 44 U.S.C. 3502(3), 5 CFR 1320.3(c). As required by the PRA, 44 U.S.C. 3506(c)(2)(A), the FTC is providing this opportunity for public comment before requesting that OMB reinstate the clearance for the pilot study, which expired in September 2006.[4]

The FTC invites comment on: (1) Whether the proposed collections of information are necessary for the proper performance of the functions of the FTC, including whether the information will have practical utility; (2) the accuracy of the FTC's estimate of the burden of the proposed collections of information; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of collecting the information on those who are to respond, including through the use of collection techniques or other form of information technology, e.g., permitting electronic submissions of responses. All comments should be filed as prescribed in the ADDRESSES section above, and must be received on or before December 18, 2006.

1. Description of the Collection of Information and Proposed Use

A. Initial Pilot Study

The goal of the initial pilot study was to assess the feasibility of directly engaging consumers in an in-depth review of their credit reports for the purpose of identifying alleged material errors and attempting to resolve such errors through the Fair Credit Report Act (“FCRA”) dispute resolution process. The FTC's contractor for the initial pilot study—a research team comprised of members from the Center for Business and Industrial Studies (University of Missouri-St Louis), Start Printed Page 61778Georgetown University Credit Research Center, and the Fair Isaac Corporation—engaged 30 randomly selected participants in an in-depth review of their credit reports. By using the Web site “myfico.com,” study participants obtained their credit reports and credit scores [5]
from each of the three nationwide consumer reporting agencies (Equifax, Experian, TransUnion—hereinafter, the “CRAs”). The contractor reviewed these credit reports with the participants to identify alleged inaccuracies and further gave advice on the difference between a small inaccuracy and a potentially significant error that could affect credit scores. After an evaluation of alleged errors for materiality by the research team, consumers were asked to channel disputed information through the FCRA dispute resolution process.[6]

Some of the contractor's key findings concerning the methodology of the initial pilot study include: [7]

(i) Participants were successfully engaged in conducting a thorough and effective review of their credit report information over the telephone. The members of the research team and the participants were unanimous in judging the review of the information as thorough and objective.

(ii) Effective mechanisms to protect consumers' personal information can be employed. For example, in the protocols of the pilot study, participants were not required to reveal their social security numbers (“SSNs”) to University members of the research team, who conducted all interviews. Only Fair Isaac received SSNs upon an initial request for credit reports by participants. Moreover, all financial account numbers (including credit and debit card numbers) were truncated to 3 or 4 digits in any information available to University researchers. These restrictions did not hinder the quality of information produced by the study.

(iii) Sufficient information was provided for a subsequent analysis of the accuracy of items placed in CRA files and presented in credit reports. For example, in addition to assessing whether the alleged errors are material, the methodology permitted the contractor to address the following types of questions:

(c) Do consumers take initiative to have the alleged errors corrected (i.e., do they file a formal FCRA dispute)?

(d) Are the alleged errors present in the credit reports from more than one CRA?

(e) Is there consistency over CRA files in representing the creditworthiness of consumers? (Specifically, sufficient information was provided to assess consistency in reporting a wide variety of pertinent information, including: employment status; length of credit history; late payments; public derogatories; utilization of revolving credit; and collection activity.)

The contractor also identified matters that would need to be addressed further, chief among these being: additional procedures to help consumers follow through with the entirety of the study process and additional ways of identifying and recruiting consumers to become participants in the study. For example, the majority of participants who alleged errors on their credit reports and indicated that they would file a formal dispute did not follow through with their intention to file. Considering that this was also true with respect to those who alleged material errors in the expert opinion of the research term, the need to further explore how to best follow-up with consumers who indicate they will file a dispute is clear. Moreover, those who ultimately became study participants tended to be persons who had relatively higher credit scores and were possibly more affluent and better educated. (Ranging from low to high, a broad spectrum of credit scores was attained in the study group; yet, the overall distribution favored the relatively higher credit scores.) FTC staff believes there is a need to further explore whether Internet access may have played a role in the apparent imbalance. For example, although the contractor would have offered to provide Internet access to otherwise qualified study participants, all of the consumers who ultimately became participants in the study already had Internet access. Accordingly, there is a need to further explore how to best invite and recruit persons to participate in the study. In consideration of these and other matters, the FTC is proposing to conduct a follow-up pilot study.

B. Follow-up Pilot Study

In many respects, the design of the follow-up study will be similar to the initial pilot study. The elements of the proposed follow-up study are as follows:

(i) A study group of 120 consumers will be drawn by a randomized procedure that is screened to consist of adult members of households to whom credit has been extended in the form of credit cards, automobile loans, home mortgages, or other forms of installment credit. The FTC will send a letter to potential study participants describing the nature and purpose of the pilot study. The contractor will screen consumers by conducting telephone interviews. Consumers who qualify and agree to participate will sign a prepared consent form giving the contractor permission to review the consumer's credit reports.

(ii) In selecting the study group the contractor will use, and may also experiment with, a variety of methods for recruiting participants. For example, in addition to therandomized selection procedure used in the initial pilot study (which made use oftelephone directories), the contractor will engage consumers through referrals from financial institutions as they apply for credit, e.g., mortgages, automobile loans, or other forms of credit. (Lenders will know—and have a permissible purpose for knowing—the consumer's credit score and certain other characteristics; consumers can then be informed of the FTC study and invited to participate.)

The contractor may experiment with additional methods for securing participation, provided that the methods employed do not violate the FCRA, and specifically do not violate the permissible purposes for obtaining a consumer's credit report (FCRA § 604).

(iii) The selected study group will consist of consumers having a diversity of credit scores over three broad categories: poor, fair, and good. The contractor will monitor the respective Start Printed Page 61779processes of recruitment so as to attain approximately equal representations of credit scores across the designated categories.

(iv) The contractor will help participants obtain their credit reports from the CRAs. Each participant will request his or her three credit reports on the same day, although different participants will generally request their reports on different days.

(v) The contractor will help the participants review their credit reports by resolving common misunderstandings that they may have about the information in their reports; this will involve educating the consumers wherever appropriate (thereby helping them to distinguish between accurate and inaccurate information).

(vi) The contractor will help participants locate any material differences or discrepancies among their three reports and check whether these differences indicate inaccuracies.

(vii) The contractor will facilitate a participant's contact with the CRAs and data furnishers as necessary to help resolve credit report items that the participant views as inaccurate. To the extent necessary, the contractor will guide participants through the dispute process established by the FCRA. The contractor will not directly contact CRAs or data furnishers during the course of the study, as the outcome of a dispute may still be pending. The contractor will determine if any changes in the participant's credit score result from changes in credit report information.[8]

(viii) For study participants who have alleged material errors and expressed an intention to file a dispute but do not file within 6 weeks, the contractor will prepare draft dispute letters on their behalf (together with stamped envelopes, pre-addressed to the relevant CRAs). The contractor will ascertain from the consumer whether the letter correctly describes the consumer's allegation and, upon confirmation, the participant will be asked to sign and send the letter.

As was true of the initial study, the proposed follow-up pilot study is not intended to replicate normal circumstances under which consumers generally review their credit reports; nor is it intended to evaluate the adequacy or complexity of the dispute process. The scrutiny applied to the reports of study participants, via the help of expert advice, would not at all be indicative of a consumer's normal experience in reviewing a credit report. The FTC recognizes that consumers often are not familiar with credit reporting procedures and may have difficulties in understanding a credit report (which may be partly due to a consumer's own misconceptions). Also, as noted above, some consumers may need extra guidance and help in completing the process of filing disputes for alleged inaccuracies. In all of the proposed activities, the contractor will use procedures that avoid identification of study participants to CRAs and data furnishers.

Furthermore, as was true of the initial study, the proposed follow-up pilot study will not employ a specific definition of accuracy and completeness and no decision has been made on the definition of these terms for a nationwide survey.[9]
Instead, both the initial and follow-up pilot studies seek to assess a methodology that involves consumer review of credit reports and both seek to ascertain the variety of information pertinent to accuracy and completeness that can be garnered.

Finally, the follow-up pilot study will list an array of possible outcomes for items reviewed on the participants' credit reports. FTC staff anticipates this list will include the following categories (the contractor may supply additional categories as warranted by matters encountered in the study):

“disputed by consumer and deleted due to expiration of statutory [FCRA] time frame”;

“disputed by consumer and data furnisher agrees to delete the item”;

“disputed by consumer and data furnisher agrees to change or modify the item”;

“disputed by consumer and data furnisher disagrees, maintaining the item to be correct”;

FTC staff anticipates that these categories will be useful in designing a nationwide survey regardless of how accuracy and completeness may be defined for such a survey.

2. Estimated Hours Burden

Consumer participation in the follow-up pilot study would involve an initial screening interview and any subsequent time spent by participants to understand, review, and if deemed necessary, dispute information in their credit reports. The FTC staff estimates that up to 800 consumers may need to be screened through telephone interviews to obtain 120 participants, and that each screening interview may last up to 10 minutes, yielding a total of approximately 133 hours (800 screening interviews × 1/6 hour per contact).

With respect to the hours spent by study participants, in some cases the relative simplicity of a credit report may render little need for review and the consumer's participation may only be an hour. For reports that involve difficulties, it may require a number of hours for the participant to be educated about the report and to resolve any disputed items. For items that are disputed formally, the participant must submit a dispute form, identify the nature of the problem, present verification from the participant's own records to the extent possible, and, upon furnisher response, perhaps submit follow-up information. As was true of the initial study, FTC staff again estimates the participants' time for reviewing their credit reports at an average of 5 hours per participant, resulting in a total of 600 hours (5 hours × 120 participants).[11]
Total consumer burden hours are thus approximately 750 hours (derived as 133 screening hours plus 600 participant hours, Start Printed Page 61780further rounding upwards to the nearest 50 hours).

3. Estimated Cost Burden

The cost per participant should be negligible. Participation is voluntary, and will not require any start-up, capital, or labor expenditures by study participants. As with the initial study, participants will not pay for their credit reports or credit scores.

Start Signature

William Blumenthal,

General Counsel.

End SignatureEnd Supplemental Information

Footnotes

1.
Commission Rule 4.2(d), 16 CFR 4.2(d). The comment must be accompanied by an explicit request for confidential treatment, including the factual and legal basis for the request, and must identify the specific portions of the comment to be withheld from the public record. The request will be granted or denied by the Commission's General Counsel, consistent with applicable law and the public interest. See Commission Rule 4.9(c), 16 CFR 4.9(c).

2.
Report to Congress Under Sections 318 and 319 of the Fair and Accurate Credit Transactions Act of 2003, Federal Trade Commission, December 2004. The December 2004 Report is available at http://www.ftc.gov/​reports/​index.htm#2004.

4.
The clearance was originally set to expire in December 2006. However, rather than seek a straight extension of the existing clearance in order to conduct the proposed follow-up pilot study, FTC staff asked OMB to discontinue the clearance in September 2006. This procedural approach ensures that the FTC's December 2006 Report to Congress (which will include a detailed review of the results of the initial pilot study) will be available to the public before the expiration of the comments period for this notice. The December 2006 Report is expected to be publicly available on the FTC's Web site by December 2, 2006.

5.
A credit score is a numerical summary of the information in a credit report and is designed to be predictive of the risk of default. Credit scores are created by proprietary formulas that render the following result: the higher the credit score, the lower the risk of default. The contractor in the initial pilot study employed a score that is commonly used in credit reporting, namely the FICO score. (The same score is anticipated for the proposed follow-up pilot study.)

6.
The FCRA dispute resolution process involves the review of disputed items by data furnishers and CRAs. The formal dispute process renders a specific outcome for each alleged error. By direct instruction of the data furnisher, the following outcomes may occur: delete the item, change or modify the item (specifying the change), or maintain the item as originally reported. Also, a CRA may delete a disputed item due to expiration of statutory time frame (the FCRA limits the process to 30 days, but the time may be extended to 45 days if the consumer submits relevant information during the 30-day period). These possible actions are tracked by a form called “Online Solution for Complete and Accurate Reporting” (e-OSCAR) that is used by CRAs for resolving FCRA disputes. (See, Federal Trade Commission and Board of Governors of the Federal Reserve System, Report to Congress on the Fair Credit Reporting Act Dispute Process, August 2006. The report is available at http://www.ftc.gov/​reports/​index.htm#2006.)

7.
As previously noted, the FTC's upcoming December 2006 Report to Congress will contain a more detailed review of the study results. The December 2006 Report is expected to be publicly available on the FTC's Web site by December 2, 2006.

8.
In making this comparison, the contractor will not just obtain a new credit report and score from the relevant CRAs after items have been corrected (although such reports will be obtained). The contractor is required to have the expertise to re-score the original credit report in the context of those changes directly related to the contractor's review, thus resulting in a re-scoring of the consumer's “frozen file.” This method addresses the concern that changes in credit scores retrieved from CRAs could be the result of the addition of new items rather than corrected items.

10.
The FTC staff recognizes the different reporting cycles of data furnishers and the voluntary basis on which information is reported to a CRA. There may be different explanations why an anticipated item is not on a particular credit report. The item may be missing because a data furnisher did not provide the information to a certain CRA, or—due to the specific reporting cycle of the data furnisher—because it was provided at a time after the credit report was viewed by the consumer. Alternatively, the item may have been submitted to a CRA but placed in the wrong consumer's file. The contractor will seek to determine, to the extent practicable, which of these explanations may apply. For example, at the end of the study the contractor may contact XYZ Mortgage, give a brief explanation of the FTC's pilot study, and inquire whether this furnisher normally reports information to Credit Bureau A; if so, then inquire about the timing of the reporting cycle. When making such inquiries, the contractor will not disclose the identities of study participants.

11.
This general estimate is given for the purpose of calculating burden under the PRA. Information contained in the contractor's report to the FTC regarding the initial study may indicate a somewhat lower estimate of the average time spent by the 30 participants, but it would not render a noticeably different result for the overall consumer burden. In an effort not to underestimate the time spent by additional study participants, FTC staff has retained the estimate used for the initial study.